Note 12—Related Party Transactions

Agreements with Affiliates

Payments to the General Partner and its Affiliates

The General Partner conducts, directs and manages all activities of the Partnership. The General Partner is reimbursed on a monthly basis, or such other basis as may be determined, for: (i) all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership and its subsidiaries; and (ii) all other expenses allocable to the Partnership and its subsidiaries or otherwise incurred by the General Partner in connection with operating the Partnership and its subsidiaries’ businesses (including expenses allocated to the General Partner by its affiliates).

For the years ended December 31, 2016, 2015 and 2014 the General Partner incurred expenses of $5.3 million, $4.7 million and $4.0 million, respectively. Such expenses are reimbursable from the Partnership and are reflected in the “Selling, general and administrative—affiliate” line on the accompanying consolidated statements of operations and comprehensive income. These expenses approximate what would be incurred by the Partnership on a stand-alone basis. As of December 31, 2016 and 2015, the Partnership had a payable of approximately $2.1 million and $0.6 million, respectively, to the General Partner which is reflected as “Due to general partner” in the accompanying consolidated balance sheets.

Registration Rights Agreement

In connection with the IPO, the Partnership entered into a registration rights agreement with the Sponsor. Pursuant to the registration rights agreement, the Partnership is required to file a registration statement to register the common units issued to our Sponsor and the common units issuable upon the conversion of the subordinated units upon request of the Sponsor. In addition, the registration rights agreement gives the Sponsor piggyback registration rights under certain circumstances. The registration rights agreement also includes provisions dealing with holdback agreements, indemnification and contribution and allocation of expenses. These registration rights are transferable to affiliates and, in certain circumstances, to third parties.

Other Transactions with Related Persons

Storage and Throughput Agreements with Center Oil

During 2007, the Partnership acquired seven terminals from Center Oil for $35.0 million in cash and 750,000 subordinated units in the Partnership. In connection with this purchase, the Partnership entered into a storage and throughput agreement with Center Oil whereby the Partnership provides storage and throughput services for various petroleum products to Center Oil at the terminals acquired by the Partnership in return for a fixed per barrel fee for each outbound barrel of Center Oil product shipped or committed to be shipped. The throughput fee is calculated and due monthly based on the terms and conditions as set forth in the storage and throughput agreement. In addition to the monthly throughput fee, Center Oil is required to pay the Partnership a fixed per barrel fee for any additives added into Center Oil’s product.

In December 2015, the Partnership extended the term of the storage and throughput agreement with Center Oil from June 2017 to June 2020. The agreement will automatically renew for a period of three years at the expiration of the current term at an inflation adjusted rate (subject to a cap), as determined in accordance with the agreement, unless a party delivers a written notice of its election to terminate the storage and throughput agreement at least eighteen months prior to the expiration of the current term.

In February 2010, the Partnership acquired a 50% undivided interest in the Baltimore, MD terminal. In connection with the acquisition, the Partnership acquired an existing agreement with Center Oil whereby the Partnership provides ethanol storage and throughput services to Center Oil. The Partnership charges Center Oil a fixed fee for storage and a fee based upon ethanol throughput at the Baltimore, MD terminal. The storage and throughput fees are calculated monthly based on the terms and conditions of the storage and throughput agreement. This agreement was renewed under the one-year evergreen provision and has been extended to May 2017.

In May 2011, the Partnership entered into an agreement to provide refined products storage and throughput services to Center Oil at the Baltimore, MD terminal. The Partnership charges Center Oil a fixed fee for storage and a fee for ethanol blending and any additives added to Center Oil’s product. The storage and throughput fees are calculated monthly based on the terms and conditions of the storage and throughput agreement. This agreement was not renewed and expired in May 2015.

In May 2013, the Partnership entered into an agreement to provide gasoline storage and throughput services to Center Oil at the Brooklyn, NY terminal. The Partnership charges Center Oil a fixed per barrel fee for each inbound delivery of ethanol and every outbound barrel of product shipped and a fee for any ethanol blending and additives added to Center Oil’s product. The storage and throughput fees are calculated monthly based on the terms and conditions of the storage and throughput agreement. This agreement was renewed under the one-year evergreen provision and has been extended to May 2017.

Throughput Agreements with UET

During July 2015, the Partnership acquired UET Midstream and its Pawnee Terminal from the Pawnee Sellers for $44.3 million in cash and 1,745,669 in unregistered common units in the Partnership. In connection with such acquisition, the Partnership acquired two terminalling services agreements with UET (each, a “UET Throughput Agreement”). Each UET Throughput Agreement requires UET Midstream to make available to UET a minimum volume of throughput capacity on a monthly basis at the Pawnee Terminal in exchange for payment by UET of a fixed, per barrel monthly fee for such capacity regardless of whether UET utilizes any or all such throughput capacity, in each case subject to certain exceptions. The minimum monthly contract throughput capacity increases each year during the initial five-year term under one of the UET Throughput Agreements. The approximately five-year initial term of each UET Throughput Agreement (which expire in May 2020) will automatically extend under certain circumstances. Each UET Throughput Agreement requires UET to deliver crude oil that meets certain specifications and to pay certain other fees, including fees for the use of excess throughput capacity and certain other ancillary services. The UET Throughput Agreements contain certain other customary insurance, indemnification, default and termination provisions, including the right of a party to terminate the applicable UET Throughput Agreement following an event of default and the expiration of all applicable cure periods.

The total revenues associated with the storage and throughput agreements for Center Oil, UET and Gulf Coast Asphalt Company (“GCAC”) reflected in the “Revenues – Related parties” line on the accompanying consolidated statements of operations and comprehensive income are as follows (in thousands):

	For the Year Ended December 31,
	2016		2015		2014
Center Oil	$	6,025	$	6,777	$	7,382
UET (a)		7,014		2,702	N/A
GCAC (b)	N/A			1,813		1,848
Total	$	13,039	$	11,292	$	9,230

(a)

UET did not become a related party until the closing of the Pawnee Terminal Acquisition.

(b)

GCAC is no longer considered a related party of the Partnership

The total receivables associated with the storage and throughput agreements for Center Oil, UET and GCAC and reflected in the “Due from related parties” line on the accompanying consolidated balance sheets are as follows (in thousands):

	As of December 31,
	2016		2015
Center Oil	$	676	$	564
UET		645		528
GCAC (a)	N/A			440
Total	$	1,321	$	1,532

(a)

GCAC is no longer considered a related party of the Partnership

Operating Lease Agreement

In January 2014, the Partnership, through its wholly owned subsidiary, Arc Terminals Holdings, entered into a triple net operating lease agreement relating to the Portland Terminal together with a supplemental co-terminus triple net operating lease agreement for the use of certain pipeline infrastructure at such terminal (such lease agreements, collectively, the “Lease Agreement”), pursuant to which Arc Terminals Holdings leased the Portland Terminal from a wholly owned subsidiary of CorEnergy Infrastructure Trust, Inc. (“CorEnergy”). Arc Logistics guaranteed Arc Terminals Holdings’ obligations under the Lease Agreement. CorEnergy owns a 6.6% direct investment in Lightfoot Capital Partners, LP and a 1.5% direct investment in Lightfoot Capital Partners GP LLC, the general partner of Lightfoot Capital Partners, LP. The Lease Agreement has a 15-year initial term and may be extended for additional five-year terms at the sole discretion of Arc Terminals Holdings, subject to renegotiated rental payment terms.

During the term of the Lease Agreement, Arc Terminals Holdings will make base monthly rental payments and variable rent payments based on the volume of liquid hydrocarbons that flowed through the Portland Terminal in the prior month. The base rent in the initial years of the Lease Agreement was $230,000 per month through July 2014 (prorated for the partial month of January 2014) and are $417,522 for each month thereafter until the end of year five. The base rent also increased each month starting with the month of August 2014 by a factor of 0.00958 of the specified construction costs incurred by LCP Oregon Holdings LLC (“LCP Oregon”) at the Portland Terminal. During 2015, spending on terminal-related projects by CorEnergy since the commencement of the Lease Agreement totaled $10.0 million and, as a result, the base rent has increased by approximately $95,800 per month. Accordingly, any additional terminal-related projects will be funded by the Partnership. The base rent will be increased in February 2019 by the change in the consumer price index for the prior five years, and every year thereafter by the greater of two percent or the change in the consumer price index. The base rent is not influenced by the flow of hydrocarbons. Variable rent will result from the flow of hydrocarbons through the Portland Terminal in excess of a designated threshold of 12,500 barrels per day of oil equivalent. Variable rent is capped at 30% of base rent payments regardless of the level of hydrocarbon throughput. During the years ended December 31, 2016, 2015 and 2014 the expense associated with the Lease Agreement was $6.4 million, $6.4 million and $6.5 million, respectively. During the years ended December 31, 2016, 2015 and 2014 there was no variable rent associated with the Lease Agreement.

So long as Arc Terminals Holdings is not in default under the Lease Agreement, it shall have the right to purchase the Portland Terminal at the end of the third year of the Lease Agreement and at the end of any month thereafter by delivery of 90 days’ notice (“Purchase Option”). The purchase price shall be the greater of (i) nine times the total of base rent and variable rent for the 12 months immediately preceding the notice and (ii) $65.7 million. If the Purchase Option is not exercised, the Lease Agreement shall remain in place and Arc Terminals Holdings shall continue to pay rent as provided above. Arc Terminals Holdings also has the option to terminate the Lease Agreement on the fifth and tenth anniversaries, by providing written notice 12 months in advance, for a termination fee of $4 million and $6 million, respectively.

Joliet LLC Agreement

In connection with the JBBR Acquisition, the Partnership and an affiliate of GE EFS entered into an amended and restated limited liability company agreement of Joliet Holdings governing their respective interests in Joliet Holdings (the “Joliet LLC Agreement”). An affiliate of GE EFS owns 40% of Joliet Holdings, while the remaining 60% is owned by the Partnership. GE EFS indirectly owns interests in Lightfoot. Lightfoot has a significant interest in the Partnership through its ownership of a 27% limited partner interest in the Partnership, 100% of the limited liability company interests in the General Partner and all of the Partnership’s incentive distribution rights. Daniel Castagnola serves on the board of managers of Lightfoot Capital Partners GP LLC and on the board of directors of the General Partner and is a Managing Director at GE EFS, which is an affiliate of General Electric Capital Corporation. In addition, Arc Terminals Holdings entered into a Management Services Agreement (the “MSA”) with Joliet Holdings to manage and operate the Joliet Terminal. Arc Terminals Holdings receives a fixed monthly management fee and reimbursements for out-of-pocket expenses. In addition, Arc Terminals Holdings may receive additional monthly management fees based upon the throughput activity at the Joliet Terminal. During the years ended December 31, 2016 and 2015, the Partnership was paid $1.3 million and $0.9 million, respectively, in fees and reimbursements by Joliet Holdings under the MSA.

PIPE Transaction

Registration Rights Agreement with PIPE Purchasers

Pursuant to a Unit Purchase Agreement dated as of February 19, 2015 (the “PIPE Purchase Agreement”) among the Partnership and the purchasers named therein (the “PIPE Purchasers”), the Partnership sold 4,520,795 common units at a price of $16.59 per common unit in a private placement (the “PIPE Transaction”) on May 14, 2015 for proceeds totaling $72.7 million after placement agent commissions and expenses, which were used to partially finance the Partnership’s portion of the purchase price of the JBBR Acquisition. As a part of the PIPE Transaction, the Partnership entered into a registration rights agreement (the “PIPE Registration Rights Agreement”), dated May 14, 2015, with the PIPE Purchasers. The issuance of the common units pursuant to the PIPE Purchase Agreement was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof.

Pursuant to the PIPE Registration Rights Agreement, the Partnership filed, and the SEC declared effective, a shelf registration statement registering the common units of the PIPE Purchasers. In addition, the PIPE Registration Rights Agreement gives the PIPE Purchasers piggyback registration rights under certain circumstances. These registration rights are transferable to affiliates of the PIPE Purchasers.

Material Relationships Relating to PIPE Transaction

MTP Energy Master Fund Ltd. (“Magnetar PIPE Purchaser”), one of the PIPE Purchasers, purchased 572,635 common units for approximately $9.5 million in the PIPE Transaction. Magnetar Financial LLC controls the investment manager of the Magnetar PIPE Investor, and an affiliate of Magnetar Financial LLC also owns interests in Lightfoot, which is the sole owner of the General Partner. Eric Scheyer, the Head of the Energy Group of Magnetar Financial LLC, also serves on the board of directors of the General Partner.

UET Contribution Agreement

In July 2015, the Partnership, through its subsidiary Arc Terminals Holdings, entered into a contribution agreement (the “Contribution Agreement”) with the Pawnee Sellers, pursuant to which it acquired all of the limited liability company interests of UET Midstream from the Pawnee Sellers for total consideration, net of certain adjustments, of $76.6 million, consisting of $44.3 million in cash and $32.3 million of common units of the Partnership. The number of common units issued to the Pawnee Sellers at the closing of the Pawnee Terminal Acquisition was based upon an issuance price of $18.50 per unit, which resulted in the issuance of 1,745,669 of the Partnership’s common units.

Registration Rights Agreement with Pawnee Sellers

In connection with the issuance of the Pawnee Transaction Units to the Pawnee Sellers pursuant to the Contribution Agreement as partial consideration for the Pawnee Terminal Acquisition, the Partnership entered into a Registration Rights Agreement (the “Pawnee Registration Rights Agreement”), dated as of July 14, 2015, with the Pawnee Sellers. The issuance of the Pawnee Transaction Units pursuant to the Contribution Agreement was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) pursuant to Section 4(a)(2) thereof.

Pursuant to the Pawnee Registration Rights Agreement, the Partnership filed, and the SEC declared effective, a shelf registration statement registering the common units of the Pawnee Sellers. In addition, the Pawnee Registration Rights Agreement gives the Pawnee Sellers piggyback registration rights under certain circumstances. These registration rights are transferable to affiliates of the Pawnee Sellers.